Barring a late surge of corporate deals in the final weeks of 2017, transaction numbers for the year will register a sizeable fall over 2016’s tally.

Although political uncertainty is undoubtedly acting as a drag on some sections of the deals market as Insider’s analysis of third quarter activity underlines, there are also significant grounds for optimism from the quality of the transactions seen in the third quarter of the year.

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Overall deal numbers involving Scottish advisors fell sharply in the third quarter to 151 compared to the 262 seen in the same period last year, taking the total for the first nine months of 2017 to 502, down from 704 in 2016. Scottish deals so far this year stand at 385, down from 543.

The quarter also saw a Scottish company list on the Nasdaq market. NuCana, an Edinburgh-based clinical-stage biopharmaceutical company focused on improving treatment outcomes for cancer patients, raised about $100m in the move.

One of the largest private equity deals seen in Scotland for several years was also completed with housebuilder Miller Homes being acquired by private equity group Bridgepoint in a £655m transaction from funds managed by GSO Capital Partners.

Despite the fall in reported deal numbers, advisors are generally upbeat about the quality and quantity of activity they are seeing.

David Kirchin, partner and head of corporate for Addleshaw Goddard in Scotland, says the Scottish M&A market is “holding its own in terms of opportunity, investor interest and price expectations” despite the perceived challenges and uncertainty created by political conditions.

“We’re seeing a healthy mixture of private equity and corporate transactions, with capital available from both UK and international investors to support acquisition and growth opportunities,” he says.

According to Graham Cunning, head of corporate finance with Campbell Dallas, the number of unsolicited approaches he is seeing being made directly by buyers to business owners also indicates a strong underlying market.

“The buyers are both trade and mid-market private equity houses, and are not just based in the UK, but also in Europe and the US helped by the fall in the value of sterling,” he says.

“Buyers are doing their homework, will look to develop a relationship with the business owners and are often willing to pay a premium for having exclusivity on the deal.”

Stuart MacLean, a partner of law firm CMS believes that clients are treating political uncertainties as just another of the business risks they face.

“Domestically we are seeing active financial sponsors whether venture capital, private equity or family and personal offices continuing to find new opportunities in a wide range of sectors.

“This partly reflects the need to utilise funds raised, but ultimately is a sign that there are lots of ambitious businesses looking to partner with equity backers to grow. It doesn’t feel to me like we are in any sort of go-slow period.”

The flotation of Glasgow-based ‘fast fashion’ chain Quiz Clothing on Aim was one of the most keenly-watched transactions of the quarter.

Ewan Grant, head of corporate finance in Scotland for RSM which acted for the firm, says the flotation highlighted the progress the company has made in recent years.

“Quiz has consistently demonstrated resilience and energy in a fast moving and highly competitive sector; and this has now been recognised by the investor community,” he believes.

Cello Signal acquired Tanami Media.

Mike Timmins, EY partner and IPO leader in Scotland, believes Quiz’s market debut has signalled renewed confidence and could act as a stimulus for other Scottish-headquartered businesses to follow suit.

“IPO activity across the UK market in the third quarter experienced a significant uptick. And we expect that Q4 2017 will be the most active quarter of the year with a number of Scottish companies also close to announcing their intention to float,” adds Timmins, although he believes a full recovery in the IPO market is dependent on the pound stabilising and greater clarity around the UK’s withdrawal from the EU.

Although it came after the quarter end, Moray-based Springfield Properties’ Aim listing will further boost confidence that the long-running reduction in Scotland’s tally of stock market quoted companies will be reversed.

Springfield raised £25m before costs through the placing of shares with the proceeds earmarked to help progress the group’s five ‘village’ development sites near Edinburgh, Stirling, Dundee, Elgin and Perth.

Although Edinburgh-based Miller Homes had also once planned to list on the stock market, the quarter saw it sold to private equity buyer Bridgepoint.

The deal confirmed months of speculation around a deal involving the firm which is one of the largest housebuilders in the UK.

Bridgepoint – which also owns sandwich chain Pret A Manger –acquired the business from GSO Capital Partners, which is part of private equity giant Blackstone.

The quarter saw a continuation of a long-running trend of overseas firms buying Scottish companies.

Deals yearly comparison

Among deals in the technology sector, Edinburgh-based data analytics specialist Aquila Insight was acquired by US marketing agency Merkle. The deal, for an undisclosed sum, has seen Aquila co-founders John Brodie and Warwick Beresford-Jones remain at the helm of a team of more than 60 statisticians and data scientists, working with clients including Royal Bank of Scotland, Sony Mobile and Tesco Bank.

The life sciences sector continues to see heightened levels of activity with deals including Frankfurt Stock Exchange-listed Evotec AG making a €15m investment into Dundee’s Exscientia in a deal advised on by CMS.

Under the undisclosed terms of the deal Tanami will remain a self-contained business unit reporting directly to Cello Signal’s Scotland managing partner Richard Marsham.

Although the whisky sector has seen a string of deals involving foreign buyers in recent years, the quarter saw the return of the Glenallachie Distillery to Scottish ownership.

Industry veteran Billy Walker led the deal to acquire the distillery and various whisky brands from Pernod Ricard.

The new owners, who were advised by Macdonald Henderson, plan to rejuvenate the brands and target export markets including France, Germany and the US.

Elsewhere in the drinks sector, craft brewer Innis & Gunn accepted a £15m investment offer from US private equity firm L Catterton in exchange for a 27.9 per cent stake in the business. The transaction values the business at around £50m.

The round, advised on by Henderson Loggie and Harper Macleod, was supported by the Scottish Investment Bank and Bellfield’s existing shareholders.

All-Scottish deals signed during the quarter included fuel distribution firm James D Bilsland, which has its headquarters in Drymen, near Stirling, taking over Kilmarnock-based Andrew Gray & Co Fuels for £2.8m. The purchase was supported by a £1.6m loan facility from the Bank of Scotland.

Aberdeen recruitment firm Cammach Recruitment, which specialises in oil and gas, also paid an undisclosed sum to take control of local peer Bryant Group, which continues to trade under its own name.

Scottish cleaning entrepreneur Roger Green purchased the commercial and industrial division of Alloa-based ACE Recycling Group CIC in a deal that has secured the future of the company after it fell into administration. ACE Recycling will merge with his commercial cleaning company Spotless and its sister company Brightwaste with each company continuing to trade using their respective names for the foreseeable future.

While overall transaction numbers are down so far this year, buyouts are continuing to enjoy a revival. In the first nine months of the year management buyouts (MBOs) and buy-ins have more than doubled to 13.

Graham Cunning at Campbell Dallas believes more buyouts are in the pipeline as private equity houses hunt deals.

“Looking ahead for the next few months into early 2018 we are likely to see more MBO activity. This is going to be driven by PE houses like Maven, NVM, YFM and Mobeus, who have all recently raised buyout funds as a result of recent rule changes, which meant venture capital trust funds could no longer be used to invest in MBOs,” he explains.

“The buyout funds are now in place and these PE houses are out looking for new opportunities, actively marketing themselves, meeting companies and seeking to back entrepreneurial management teams with their funds and expertise.”

Managing director Val Barr led the acquisition of the Lanark-based firm after securing £1m in financial backing from Allied Irish Bank.

One of Glasgow’s most established family-run timber and builders’ merchants, Kelvin Timber, also completed a buyout in a deal advised on by French Duncan.

The transaction saw the business, which was set up by brothers Frank and Vincent McHugh, acquired by Frank’s son, Richard and the company’s existing managing director Mark Maginnis.

Shawbrook Bank provided funding to the team and Macdonald Henderson acted as legal adviser.

Kilwinning-based engineering firm William Engineering was the subject of a buyout by its former general manager John Murphy in a deal backed by Business Loan Scotland and Team North Ayrshire. The business is now known as Murphy Engineering (Scotland).

Banking and investment deals during the quarter included a £6.5m investment by BGF (Business Growth Fund) into Entier, Scotland’s largest independent privately-owned catering company.

The Westhill-based company plans to expand its overseas operations, building on its existing work at 38 locations in 23 countries.

The company also recently acquired Wilde Thyme, the Perthshire-based catering firm, which runs the restaurants at Glamis Castle in Angus and the Glenturret Distillery in Perthshire, home to the Famous Grouse whisky brand.

The refinance was advised on by Hampshire-based Premier Commercial Finance, which specialises in the corporate healthcare sector.

The founder of the New Look fashion chain, Tom Singh, was among the backers of a £1m funding round secured by Scottish education software firm Gecko Labs. The deal is aimed at accelerating the Edinburgh-based company’s global push as it launches a new live chat system connecting universities and potential students. The firm is also expanding into the North American market, opening a London office and plans to increase staff numbers by 50 per cent following the support from investors.

Transactions in the oil and gas sector during the quarter included a complex restructuring of around $3.3bn of debt facilities for listed firm Premier Oil.

Stuart McLean, CMS (Image: Renzo Mazzolini Photography)

Gillespie Macandrew’s corporate and dispute resolution team analysed and reported on the statutory compliance of the proposed schemes for the Scottish courts.

Stirling-based WaveLIFT secured funding of more than £1m to further develop its innovative pump technology for the oil and gas sector. The funding was led by Scottish business angel investment syndicate, Archangels, with co-investment from Scottish Enterprise and a private investor.

Skin care technology firm Cutitronics, established in 2014 as a spin-out company from the University of Strathclyde, also announced a significant investment from FTSE 100 firm Croda.

Although the recent interest rate rise could impact on business confidence which in turn may dampen some areas of the deals market in the months ahead, Donald Munro, head of corporate at Harper Macleod, says consolidators in a number of sectors have “got the money lined up and they’re going to spend it”.

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He also believes the merger moves seen in the legal sector north of the border of late are a positive for the remaining Scottish advisers.

“There are many fantastic clients in Scotland who it appears the ‘global’ players aren’t really interested in and therefore can’t service effectively, which creates increased opportunity even if overall activity shows a downward trend,” he argues.

Top Performers among Scotland's Investors/Advisors Jan 2017 to Sep 2017

Investors

No of Deals

Value

Scottish Enterprise*

40

>£32.83m

Royal Bank of Scotland

6

>£110.68m

Par Equity

6

>£5.55m

Old College Capital

6

>£1.84m

Business Growth Fund

5

>£26.3m

Barwell Plc

5

>£1.38m

Archangel Informal Investments

4

>£3.26m

Kelvin Capital

4

>£2.12m

Scottish Futures Trust Investments

3

>£47.20m

HCF Investments Limited

3

>£47.20m

Archangel Investors Ltd

3

>£5.22m

Shawbrook Bank Plc

3

>£2.8m

Equity Gap

3

>£0.9m

Clydesdale Bank

3

N/D

HSBC (Scotland)

2

>£190m

Wellspring Partnership Limited

2

>£43.78m

Greater Glasgow Health Board

2

>£43.78m

West Coast Capital

2

>£5.2m

EOS Syndicate Management Ltd

2

>£0.71m

GU Holdings

2

N/D

Panoramic Growth Equity

2

N/D

Lonsdale Capital Partners

2

N/D

Lloyds Banking Group

2

N/D

*incl Scottish Investment Bank 5 @>4.93m **incl Bank of Scotland 1 @N/D. All other investors were non-Scottish or participated in one deal

Lawyers

No of Deals

Value

Brodies

85

>£1.32bn

Burness Paull

74

>£3.89bn

Pinsent Masons

59

>£3.63bn

CMS Cameron McKenna Nabarro Olswang

57

>£1.31bn

Harper Macleod

46

>£256.37m

Shepherd & Wedderburn

45

>£2.65bn

Dentons/Maclay Murray & Spens

25

>6.84bn

Macdonald Henderson

24

>£15.03m

Addleshaw Goddard

22

>£145.59m

MacRoberts

21

>£117.6m

MBM Commercial

19

>£10.56m

DLA Piper (Scotland)

15

>£646.37m

Morton Fraser

13

>£3.33m

Blackadders

12

>£1.42m

Lindsays

11

>£1.31m

Blackwood Partners

10

>£7m

Thorntons

10

>£6.83m

Morisons

8

>£24.51m

Bellwether Green

7

>£0.12m

Vialex

7

N/D

Stronachs

7

N/D

Wright Johnston Mackenzie

6

>£0.9m

Kergan Stewart

5

>£7.12m

Ledingham Chalmers

5

N/D

Frazer Coogans

3

>£3.09m

Grant Smith Law Practice

3

>£2.8m

BTO

3

N/D

DWF

3

N/D

Holmes McKillop

3

N/D

Brunton Miller

2

>£3.2m

ISW Legal

2

>£0.43m

Davidson Chalmers

2

N/D

Clark Boyle Solicitors

2

N/D

McKinstry & Co Solicitors

2

N/D

James Thomson & Son

2

N/D

Condies

2

N/D

All others were non-Scottish or participated in one deal only.

Accountants

No of Deals

Value

Anderson Anderson & Brown

24

>£46m

Johnston Carmichael

15

>£80.87m

PwC

12

>£1.04bn

Consilium

11

>£7.25m

DC Consulting

10

>£7.85m

BDO

9

>£47.7m

Campbell Dallas

9

>£6.92m

Henderson Loggie

6

>£1.12m

Simmons & Co International

6

N/D

Grant Thornton

5

>£78.35m

RSM

5

>£35.13m

Mazars

4

>£45.9m

French Duncan

3

>£5.4m

EY

2

>£136m

Caledonian Economics

2

>£96.6m

Deloitte

2

>£37.5m

FRP Advisory

2

>£18.5m

Robertson Smith & Co

2

>£2.5m

Morris & Young

2

>£2.5m

Stewart and Stewart

2

N/D

Blair & Bryden

2

N/D

All others were non-Scottish or participated in one deal only.

Sector

No of Deals

Banking & Finance

44

Construction

8

Distribution & Wholesale

5

Drinks (+soft)

11

Electronics

34

Engineering

14

Food & Farming

22

Hotels & Leisure

65

Industrial & Manufacturing

58

Marketing & Media

18

Motor

2

Offshore

33

Paper & Packaging

3

Property Dev & Investment

32

Retail

8

Services*

165

Textiles

2

Transport

9

*Note: Services includes - Utilities 41, Healthcare 30. Some deals fall into more than one sector